Yesterday we shared some exciting news, announcing our Series D investors . As a follow up, I wanted to share eight lessons learned while building and funding HubSpot . These lessons apply to any business striving for excellence.
8 Lessons From HubSpot’s $32 Million Round with Salesforce, Google, and Sequoia
1. You Can’t Take Your Foot Off The R&D Gas Anymore - Traditionally “late” stage rounds like the one HubSpot just raised is put primarily to work into sales and marketing at the expense of R&D. This made sense in a world where sales reps controlled the whole sales process and word of mouth was muted by asymmetric information. Today’s sales process is run by the customer and information is completely symmetric, so you need to continue to invest in R&D, count on that investment making happy customers, and rely on your happy customers to spread the word for you. It used to be that if your product stunk, you could get away with it, but today if your product stinks, you’ll get slaughtered by the marketplace.
2. Inbound Marketing Works - We have a freemium version of our product, a free trial, a blog (that you are reading right now), free webinars, etc. All of this free content acts like a magnet for new customers and has propelled us from nothing to something special four years later. Just last month, we generated over 30,000 leads through inbound marketing.
3. Create A Category, Don’t Join A Category - You are better off creating a marketing category today than joining an existing category. We made an early choice to create the “inbound marketing” category versus joining either the marketing automation category or the Internet marketing software category. This turned out to be one of our better decisions.
4. You Need An Enemy - For some reason, humans can’t resist the cops & robbers theme. When you create your marketing strategy, even if you are creating a new category, you need to polarize. In our case, we picked “outbound marketing” as the enemy. I remember my co-founder showing a slide of a kitten one time and stating something like “every time you buy a list and spam it, a kitten dies.”
5. SMB’s Are The New Enterprise - My co-founder and I both grew up in the enterprise software business and came independently to the conclusion that that cost to acquire an enterprise customer is growing over time while the cost to acquire an SMB customer is dropping over time. There has been a pile of cash made in the enterprise software business over the last 20 years, but I think the next 20 years will more likely provide those outsized returns to folks who delight SMB’s.
6. Disrupt From Below With Simplicity - While we were starting HubSpot, my co-founder and I were taking Clay Christiansen’s class about how disruptions occur in industries. Basically, the fat cats go after larger and more profitable accounts over time and keep adding features to make them happy until their products are just too complicated leaving room for disrupters who come in from below with a easier solution at a lower cost who ends up toppling the fat cats. In our case, the status quo was a cobbled together mess of marketing software including analytics, CMS, blogging, social media monitoring, competitor analysis, marketing automation, SEO tools, etc. Rather than building a better mousetrap, we built an easier mousetrap through integration.
7. Partner With Asteroids - I had dinner a couple of weeks back with Drew Houston, founder of Dropbox. He said that a big part of his job was navigating his spaceship through the asteroid field of potential competitors. Part of that statement motivated me to partner with Salesforce.com and Google on this deal as they are asteroids that could blow up our spaceship or could accelerate it if we can hitch a ride. Too early to tell if this decision is a good one, but it feels right.
8. It Is A Go Big Or Go Home World We Live In - I learned in b-school that the natural state of most industries is an oligopoly where there a number of players with smaller than 50% of the market. Since the internet, we believe we have moved into a winner-take-all world where the market leader in a new industry gets 80%+ of the market cap in their industry, like Google (search), Salesforce (CRM), Groupon (group buying), VMWare (virtualization), etc. We believe we have a head start in an important new industry, so we are hitting the gas to try be that winner who takes all.
If you have any questions on these or want to give us your favorite tip, please leave a comment and I’ll get back to you shortly.